A Guide to Buying Your First Commercial Property in Philadelphia (2023)

7. April 2023 inThe blog,property

You may have been renting or working from home, but now you're ready to make a big investment and buy your first commercial property in Philadelphia. Congratulations! Then you are exactly right here.

However, buying commercial property can be a daunting process, especially for first-time buyers. With so many factors to consider, a comprehensive guide is essential to smoothly guide you through the process.

In this guide, we provide you with expert tips and strategies to help you find and buy your ideal commercial property in Philadelphia. Whether you're a start-up, a small business owner, or an established business looking to expand, we've got you covered. So let's dive in!

Photo ofkelly kiernanInUnsplash

Why Philadelphia is a great place to invest in commercial real estate

If you're looking to spice up your investment portfolio, visit the city of brotherly love: Philadelphia. This vibrant city is known not only for its cheesesteaks and historical monuments, but also for its thriving commercial real estate market.

Why Philadelphia you ask? Well, Philadelphia is the perfect blend of modern and traditional, offering a dynamic mix of commercial real estate opportunities. From bustling downtown areas to quaint historic neighborhoods, Philadelphia has something for every investor's taste.

But that's not all, the city is also a melting pot of industries ranging from healthcare and education to finance and technology, ensuring a steady stream of job opportunities and economic stability. Additionally, with a well-established real estate market and affordable real estate prices, Philadelphia offers the perfect opportunity for investors to maximize their return on investment.

Determine your budget

Before you dive into the exciting world of commercial real estate investing in Philadelphia, be sure to set your budget. Knowing how much you have to spend can help you narrow your search and focus on properties that fit your budget.

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There are several factors to consider when setting your budget such as: B. Your current cash flow, expected return on investment and the type of property you want to buy. It's important to thoroughly research the local real estate market, including property prices, taxes and maintenance costs, to ensure you have a realistic understanding of the costs involved. While it may be tempting to break the bank to acquire a prime property, it's important to be realistic and invest within your means.

Understand the types of commercial real estate

When it comes to commercial real estate investing in Philadelphia, there is no shortage of options available. But with so many types of commercial property on the market, it can be difficult to decide which is right for you.

From office buildings and retail spaces to warehouses and industrial complexes, each type of commercial real estate presents unique advantages and challenges. For example, office buildings typically offer higher rental rates but require more maintenance and upkeep, while warehouse buildings offer lower rental rates but require less maintenance.

When choosing a commercial property, it is important to consider your investment goals and the target market. If you're looking to attract small business owners, retail space may be the way to go, while large corporations may prefer office buildings or industrial complexes.

Location, location, location: factors to consider when choosing your property

The adage "location, location, location" applies when it comes to commercial real estate investments in Philadelphia. Choosing the right location can mean the difference between a lucrative investment and a money pit. So before you sign the dotted line, there are a few key factors to consider.

First and foremost, accessibility is key. Is the property located in a busy area with easy access to major highways and public transport? Next you need to think about your target market. Is the property in an area that attracts the desired tenants or customers?

It's also important to keep an eye on the local real estate market and the competition in the area. Are real estate values ​​rising and is the local economy stable? These factors can significantly affect the value and profitability of your investment.

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Navigating the financing process: options for financing your purchase

Buying commercial real estate in Philadelphia can be a significant investment, and financing can be a crucial factor in making it happen. Financing your purchase is easy with multiple options available.

First, traditional bank loans are a popular option for those with strong credit histories and significant cash reserves. However, the application process can be lengthy and complicated, and applying for a loan can require a significant down payment.

Alternatively, private investors and lenders offer more flexible financing options, including bridging loans and mezzanine financing. These options may be more affordable for those with less than perfect credit or limited cash reserves.

Finally, crowdfunding and real estate investment trusts (REITs) offer new and innovative ways to invest in commercial real estate in Philadelphia. These options allow investors to pool their resources and invest in a diversified real estate portfolio.

Legal Considerations: What you need to know about contracts, titles and zoning laws

Investing in commercial real estate in Philadelphia requires navigating a complex legal landscape, including contracts, title and zoning laws. It is crucial to work with a qualified real estate attorney to review and negotiate the terms of the purchase agreement to ensure your rights and interests are protected.

In addition, thorough title research can uncover existing liens, judgments, or other claims against the property.

Finally, understanding Philadelphia zoning laws is crucial to ensure your property is being used in accordance with local regulations. Partnering with experienced legal professionals and conducting proper due diligence can mitigate legal risk and ensure a successful investment.

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Submission of offers and conclusion of contract: last steps in the purchase process

Once you've found the right commercial property, mastered the financing process, and completed extensive due diligence, it's time to make an offer and close the deal. This can be an exciting but also stressful process as you negotiate the terms of the purchase agreement, secure financing and complete the transaction.

Working with an experienced real estate agent or attorney can help ensure your listing is competitive and your deal goes smoothly. From determining a reasonable purchase price to negotiating contingencies, a successful bid and closing can mean the difference between a profitable investment and a missed opportunity in Philadelphia's buoyant commercial real estate market.

Renovating and renting out your new property: tips to maximize your investment

Once you've closed the deal for your Philadelphia commercial property, it's time to focus on renovating and renting out the space to maximize your investment. This includes developing a renovation plan that works for your budget and target market, as well as attracting reliable tenants or customers.

Working with experienced property managers and contractors can help streamline the renovation and rental process, ensuring your property is well maintained and generating income. Additionally, it can help ensure long-term success in Philadelphia's competitive commercial real estate market by keeping you abreast of market trends and adjusting your strategy as necessary.

Maintaining your property: protecting your assets and preparing for the future

Congratulations on your new commercial real estate investment in Philadelphia! While the buying process may be complete, the work is far from over. Maintaining your property is critical to protecting your assets and securing their long-term value. Because? Because with the right maintenance plan, you can ensure that your property remains a valuable asset for years to come.


When you finish reading this guide, you may feel a sense of excitement mixed with some apprehension. This is perfectly normal – investing in commercial real estate is an important step, but it can also be very lucrative if done right.

Remember, the key to success is doing your due diligence, seeking expert advice and being proactive in maintaining your property. Philadelphia's commercial real estate market offers plenty of opportunity for investors of all stripes, and with the right mindset and strategy, you can secure your share of the booming economy in the City of Brotherly Love.

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So why wait any longer?Contact usStart your journey to your dream commercial property in Philadelphia today!


What to know when investing in commercial real estate? ›

Four Things to Know Before Investing in Commercial Real Estate
  • Know the market.
  • Understand demographics and urban dynamics.
  • Identify the asset type you plan to own — retail, hospitality, residential or office.
  • Have an exit strategy.

What is the outlook for commercial real estate in Philadelphia? ›

Vacancy rate: 1.6% Investment sales trends: $516 million in Q1 2022, median sales price per unit $179,543, 5.2% average cap rate.

How much is commercial real estate per square foot in Philadelphia? ›

$213.6M2021 Total Office Sales

Philadelphia office price per square foot in 2021 was $34.48 on average.
2021 Office Vacancy Rates in Philadelphia.
SubmarketAsking RentsVacancy Rates
Center City District$34.7310.65%
North Philadelphia$19.267.86%

How do you flip commercial real estate? ›

If less competition and the potential for greater profits sound appealing to you, check out these tips for flipping commercial real estate.
  1. Build your network. ...
  2. Understand commercial property types. ...
  3. Understand commercial property values. ...
  4. Consider a buy-and-hold strategy. ...
  5. Understand commercial real estate loan terms.
May 10, 2022

What is a good ROI on commercial real estate? ›

Overall, a low performing property will have a rate of return closer to 6% while a high performing property will reach rates of return of 12% or better.

How many years should it take to pay off a commercial property? ›

Most commercial loans are not fixed for 30 years like they are with residential real estate. In commercial real estate loans balloon in 5, 7, or 10 years. Regardless of interest rates, you will need to refinance in 5, 7, or 10 years or sell the property to pay off the lender.

How do you estimate the cost of a commercial building? ›

You can estimate the cost of commercial construction by collecting data on the project, such as size, location, materials, complexity, and labor costs. This data is used to generate a budget that includes labor, materials, services, and other related costs.

How much is office space in Philadelphia? ›

The average cost for Office Space for lease in Philadelphia is about $26.78 per square foot.

How many square feet per person in a commercial building? ›

Common areas – 80-100 square feet per person. Conference rooms – 25-30 square feet per person. Executive offices – 90-150 square feet. Open workstations – 60-110 square feet per person.

What is the 70% rule in real estate flipping? ›

The 70% rule can help flippers when they're scouring real estate listings for potential investment opportunities. Basically, the rule says real estate investors should pay no more than 70% of a property's after-repair value (ARV) minus the cost of the repairs necessary to renovate the home.

How do you negotiate commercial real estate? ›

Five Tips for Negotiating a Commercial Real Estate Transaction
  1. Know Your Needs. The first step in an effective negotiation is to have a firm grasp on what you need out of the lease or sale. ...
  2. Set Budget Beforehand. ...
  3. Due Diligence. ...
  4. Making an Offer. ...
  5. Treat All Parties With Respect.
Aug 5, 2019

How do you negotiate a commercial real estate sale? ›

Here are Prikker's seven steps to help you negotiate your commercial real estate purchase to your best advantage.
  1. Think about your needs. ...
  2. Set your budget. ...
  3. Find good advisors. ...
  4. Cast a wide net to save on price. ...
  5. Investigate your site thoroughly. ...
  6. Make an effective offer. ...
  7. Before you close the deal.

Is Philly a good investment? ›

If you are focusing on buying investment rental properties, Philadelphia is most likely the perfect place for you. The percentage of Philadelphia renters keep growing, while home prices are some of the most affordable in the United States–making this an ideal city for real estate investment properties or buying a home.

Is it a good time to buy in Philly? ›

According to Zillow, Philadelphia properties saw a roughly 10% price increase in the last twelve months (October 31, 2022), and they expect prices to go up in 2023 by 0.8%. The months' supply has shrunk to 1.59 months as of November 2022.

Is Philadelphia a good place to buy rental property? ›

Other promising neighborhoods are Bella Vista, East Falls, Old City, Queen Village, Fairmount, and Woodland Terrace. In 2022, the median home price in Philadelphia is $233,563, up 6.5% year-over-year. Philadelphia is also one of the best cities for Airbnb investment, because of the large number of tourist attractions.

What is the 50% rule in commercial real estate? ›

The 50% rule is a guideline used by real estate investors to estimate the profitability of a given rental unit. As the name suggests, the rule involves subtracting 50 percent of a property's monthly rental income when calculating its potential profits.

What is the 1% rule commercial real estate? ›

What Is The 1% Rule In Real Estate? The 1% rule of real estate investing measures the price of the investment property against the gross income it will generate. For a potential investment to pass the 1% rule, its monthly rent must be equal to or no less than 1% of the purchase price.

What is the 2% rule in real estate? ›

This is a general rule of thumb that determines a base level of rental income a rental property should generate. Following the 2% rule, an investor can expect to realize a gross yield from a rental property if the monthly rent is at least 2% of the purchase price.

Can you pay off commercial mortgage early? ›

If a commercial real estate loan has a prepayment penalty, it will be assessed at the time the loan is paid in full prior to maturity and within the prepayment penalty period. Most loans are typically repaid when a borrower decides to pay off the loan early, or when a property is sold.

What is the life expectancy of commercial property? ›

The lifespan of a commercial building on average ranges from 50 to 60 years and can go further depending on the preservation techniques employed by the owner and the way the building is utilized. Every structure is unique, and its endurance depends on its build quality and maintenance management.

What is the interest rate on a commercial loan? ›

Today's Commercial Mortgage Rates
Multifamily5 Year10 Year
Commercial5 Year10 Year
3 more rows

Will construction costs decrease 2023? ›

In February 2023, most pundits believe the construction materials cost will continue to fluctuate. The consensus is that the cost of most materials will not return to pre-pandemic levels this year, though they should come down or at least not increase as dramatically as they have been.

What is the most common method of estimating building costs? ›

1. Unit pricing. This method of construction cost estimating is the most common. The unit pricing method is achieved by calculating the overall cost of the project based on unit costs.

What is the value of a building? ›

Building value is the value of the physical structure of a home. Property value includes building structure and the value of the land the home sits on.

Why is office space so cheap? ›

Cheap office space is usually cheap because the landlord hasn't invested a lot of money into the space itself. Maybe the owner got a deal on the property and it's one of many commercial properties he or she manages.

How much should I budget for office space? ›

Commercial tenants should be able to spend 5% to 10% of their gross sales per foot on rent. Your gross sales divided by the location's square footage will give you sales per square foot. For example, you estimate your business will make $300,000 per year in total sales, and you are looking at a 1,500 square foot space.

How much does retail space cost in Philadelphia? ›

The cost of renting a shop in Philadelphia is very high. But the average cost of rent for a shop in Philadelphia is $2,500 per month.

What are typical commercial building sizes? ›

The average size of buildings constructed before 1960 (26% of the commercial building stock) is 12,000 square feet; buildings constructed between 1960 and 1999 (55%) average 16,300 square feet; and buildings constructed in the 2000s (18%) average 19,000 square feet.

How many feet is in 1 story in a commercial building? ›

The height of each storey in a building is based on ceiling height, floor thickness, and building material — with a general average of about 14 feet.

What is a good office size? ›

According to Office Finder, it's best to allow about 175 square feet of space for each person who works in your office. Leaders and executives usually require between 200 and 400 foot square feet. Open office workstations only require about 100 square feet per person.

What is the 4 3 2 1 rule in real estate? ›

4-3-2-1 rule

The front quarter of the standard site receives 40% of the total value. The second quarter receives 30% of the total value. The third quarter receives 20% of the total value; and the rear quarter receives just 10% of the total value.

What is the golden formula in real estate? ›

In case you haven't heard of the so-called Golden Rule in house flipping, the 70% Rule states that your offer on a property should be no greater than 70% of the After Repair Value (ARV) minus the estimated repairs.

What is micro flipping? ›

What Is Micro-Flipping? Micro-flipping is a type of short-term real estate investment that involves buying properties in need of renovations and reselling them quickly for a profit, usually without improvements.

How do you structure a commercial real estate deal? ›

6 Steps to Structure a Commercial Real Estate Deal
  1. Set Investment Goals. ...
  2. Create a Foresight of the Investment. ...
  3. Factor-in the Investors' Deal. ...
  4. Adjust the Deal to Ensure Feasibility. ...
  5. Establish an LLC. ...
  6. Draft the Operating Agreement.
Aug 25, 2021

How do you maximize commercial real estate? ›

6 Tips on Investing Sensibly in Commercial Real Estate Property
  1. Calculate the Return on Investment of the Property. ...
  2. Get a Grip on Your Local Real Estate Market. ...
  3. Get a Crash Course on Commercial Real Estate Terminologies. ...
  4. Do a Thorough Background Research. ...
  5. Weigh the Financial Aspects before Investing.

What is highest and best offer commercial real estate? ›

Why do Realtors say “highest and best?” “Highest and best” means that the seller has multiple offers and doesn't wish to negotiate. Instead, they want to get final offers from each buyer, with their highest offer and best terms, so they can compare and pick one.

What is the risk in commercial real estate investing? ›

In commercial real estate, every party in a given land or property transaction poses some financial risk. As a purchaser, you pose the risk of taking out too large a loan, not being able to make the payments, and hurting your credit. This is also a risk to the entity lending the money.

How do investors make money from commercial real estate? ›

Unlike a residential real estate investor, commercial real estate investors lease out and collect rent from the businesses that occupy their properties rather than from residential tenants. It should also be noted that raw land purchased for commercial property developments is also included in this definition.

How do people invest in commercial real estate? ›

Real estate investment trusts (REITs) are the easiest ways to invest in commercial real estate. The REITs collect money from several investors to purchase and manage multiple commercial properties with this option. Dividends are paid to the investors.

What is the most profitable commercial real estate? ›

Properties with the highest number of tenants are the ones that are capable of bringing in the highest ROI. These properties include apartment complexes, office buildings, student housing, RV parks, storage facilities, etc.

What commercial property has the most risk? ›

Single-tenant, single-use buildings like an auto dealership are the highest-risk commercial property investment. If the dealership goes out, you have 100% vacancy. And what other type of tenant could you find to occupy that space?

What is the downside of commercial real estate? ›

Cons of commercial real estate investment include their significant cost and management intensity. In addition, market risk, vacancy risk, and interest rate risk can put additional pressure on commercial real estate prices.

What is one of the biggest risks to a real estate investment? ›

High Vacancy Rates

Unfortunately, there's always the risk of a high vacancy rate in real estate investing. High vacancies are especially risky if you count on rental income to pay for the property's mortgage, insurance, property taxes, maintenance, and the like.


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